February 1, 2012: At their special summit meeting in Brussels on Monday, European Union leaders agreed upon the initial steps in establishing a fiscal union to strengthen the monetary union, otherwise known as the euro. German chanceller Angela Merkel heaped praise on the successful negotiations, calling them a "masterpiece."

However, the new fiscal union will not encompass the entire European Union membership. Of the 27 EU member states, 25 accepted the proposal that will transfer a measure of control over national budgets to Brussels. Among other things, members of the new fiscal union will be required to adopt a balanced budget provision as part of their national law or constitution and accept stricter rules on deficit reduction. Chancellor Merkel said that a mechanism for disciplining wayward fiscal union members will be established by the end of March. The United Kingdom had already said that it would not be a party to the new fiscal union, and the Czech Republic announced that it will not be a signatory to the treaty.

Leaders also agreed to introduce the EU's new "European Stability Mechanism" (ESM) on July 1, 2012, one year earlier than originally planned. The ESM is a permanent 500 billion euro loan fund that will provide assistance to eurozone members struggling with debt obligations. It will replace the temporary "European Financial Stability Facility" (EFSF) on July 1, 2013, and both funds will run concurrently for one year. The current agreement limits the combined lending power of the two funds to 500 billion euros. However, some officials believe that the limit may be altered to increase the ESM funding to 750 billion euros (or even more) once it is the sole emergency loan fund for eurozone countries.

In what has become a regular practice prior to EU financial summits, French president Nicolas Sarkozy and chancellor Merkel met prior to Monday's meeting to reach bilaterial agreement on the proposals they would support in Brussels. This time Sarkozy prevailed over Merkel in rejecting a German suggestion that EU officials should be given authority to monitor Greece's national budget to ensure that the country is complying with mandatory cost-saving measures that have to be fulfilled for Athens to receive more financial aid. Press reports on Germany's idea prompted an angry response from Greek officials who demanded that their country be treated with dignity.

Despite Sarkozy's rejection of direct EU control over the Greek national budget, Angela Merkel was not the only one who wondered whether such controls might be necessary. Luxembourg's prime minister Jean-Claude Juncker voiced support for an external watchdog mechanism "within a framework of treaty agreements . . . if a country were to be operating continually outside the [approved] path." Just last week Juncker described the Greek situation in exactly those terms.

The new fiscal union will take effect as soon as twelve EU countries ratify the treaty. It is the next step on the long slow road of full European integration that sees more and more national sovereignty being transferred to Brussels.